Question

Marvel Parts, Inc., manufactures auto accessories. One of the company's products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 990 hours each month to produce 1,980 sets of covers. The standard costs associated with this level of production are: Total $ 39,798 $ 5,940 Per Set of Covers $20.10 3.00 Direct materials Direct labor Variable manufacturing overhead (based on direct labor-hours) $ 3,168 1.60 $24.70 During August, the factory worked only 1,000 direct labor-hours and produced 2,200 sets of covers. The following actual costs were recorded during the month: Direct materials (7,400 yards) Direct labor Variable manufacturing overhead Total $ 40,700 $ 8,140 $ 3,960 Per Set of Covers $18.50 3.70 1.80 $24.00 At standard, each set of covers should require 3.0 yards of material. All of the materials purchased during the month were used in production.

Answer 1

Standard rate of material per yard = $20.10 / 3 = $6.7 per yard
Standard labor hour rate = $5,940 / 990 hours = $6 per hour
Standard labor hour per unit = 990 hours / 1980 units = 0.5 hours per unit
Standard variable overhead rate per hour = $3168 / 990 hours = $3.2 per hour

Material price variance = (Standard rate per yard * Actual yards used - Actual material cost)
= ($6.7 * 7400 yards - $40,700)
= $8,880 F

Material quantity variance = (Standard quantity for actual production - Actual quantity) * Standard rate
= (2200 covers * 3 yards - 7,400 yards) * $6.7 per yard
= (6600 yards - 7,400 yards) * $6.7 per yard
= $5,360 U

Labor rate variance = (Standard labor hour rate * Actual hours - Actual labor cost)
= ($6 * 1000 hours - $8,140)
= $2,140 U

Labor efficiency variance = (Standard hours for actual production - Actual hours) * Standard labor hour rate
= (0.5 hours * 2200 covers - 1000 hours) * $6 per hour
= (1100 hours - 1000 hours) * $6 per hour
= $600 F

Variable overhead rate variance = (Standard var. overhead rate * Actual hours - Actual variable overhead cost)
= ($3.2 * 1000 hours - $3,960)
= $760 U

Variable overhead efficiency variance = (Standard hours for actual production - Actual hours) * Standard var. overhead rate
= (0.5 hours * 2200 covers - 1000 hours) * $3.2 per hour
= (1100 hours - 1000 hours) * $3.2 per hour
= $320 F